Relief For NBFCs As RBI’s Proposed Rules Not As Tough As Feared
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Relief For NBFCs As RBI’s Proposed Rules Not As Tough As Feared

The Reserve Bank of India’s proposed new regulations for non-bank lenders are not as restrictive as feared and may bring relief to these stocks, brokerages said in response to the regulator’s discussion paper released on Friday.

The RBI did not prescribe a cash reserve ratio requirement or higher statutory liquidity ratio requirements for non-banking financial companies. Instead, it suggested tweaked capital ratios, provisioning requirement and stronger governance by splitting NBFCs into four layers based on size, risk perception and the level of inter-connectedness.

CLSA: No Impact On Profits

  • There was no proposal that would have a material impact on profit of NBFCs, such as a higher liquidity coverage ratio or statutory liquidity ratio.
  • Even the capital requirement proposed are near status quo. The proposed 9% common equity tier-1 ratio should not be difficult to use as there is negligible use of non-equity capital instruments by NBFCs.
  • While for large NBFCs a cap on leverage has been proposed, the RBI has not indicated the leverage limit. The only negative impact could be that the RBI restricts leverage for mortgage business in line with other asset classes.

Phillip Capital: Lending Restrictions May Hurt A Few

  • In the short term, the proposed changes will have a “slight negative impact” for a few NBFCs.
  • A cap of Rs 1 crore on IPO financing per individual may hurt NBFCs such as Bajaj Finance, JM Financial, IIFL, Kotak Prime.
  • Differential standard asset provisioning proposed. Farm credit and SME loans to attract standard asset provisioning of 0.25%, while commercial real estate to attract 1% and commercial real estate for residential housing to attract 0.75% provision.
  • This is positive for NBFCs such as Mahindra and Mahindra Financial Services, Magma Fincorp, Shriram City Union Finance. It is negative for NBFCs such as Piramal Enterprises which have substantial exposure to commercial real estate.

Motilal Oswal: Step In The Right Direction

  • Discussion paper signals an intent to tighten regulation of NBFCs by reducing the regulatory arbitrage. Taking a size-based approach rather than a one-size-fits-all approach is appropriate.
  • No recommendation to impose CRR, SLR or additional priority sector lending rules is a key positive.
  • On the business front, the IPO financing market may see some impact as exposure has been capped at Rs 1 crore.
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